In re: KB TOYS INC., et al., Debtors ASM CAPITAL, L.P.; and ASM CAPITAL II, LLP, Appellants
Argued: September 24, 2013.
On Appeal from the United States District Court for the District of Delaware (D.C. No. 12-cv-00716) District Judge: Hon. Richard G. Andrews.
Matthew B. McGuire, Esq. [ARGUED] Landis, Rath & Cobb Counsel for Appellant.
Susan F. Balaschak, Esq. [ARGUED] Akerman Senterfitt LLP John H. Knight, Esq. Andrew C. Irgens, Esq. Richards, Layton & Finger, P.A. One Rodney Square, Counsel for Appellee.
Before: CHAGARES, VANASKIE, and SHWARTZ, Circuit Judges.
SHWARTZ, Circuit Judge.
This appeal arises out of the Chapter 11 liquidation of KB Toys Inc. and affiliated entities (the "Debtors"). Pursuant to 11 U.S.C. § 502(d), the Residual Trustee of the KBTI Trust sought to disallow certain trade claims that ASM Capital, L.P., and ASM Capital II, LLP, (together, "ASM") obtained from some of the creditors. Under § 502(d), a bankruptcy claim can be disallowed if a claimant receives property that is avoidable or recoverable by the bankruptcy estate. See 11 U.S.C. § 502(d). The issue here is whether a trade claim that is subject to disallowance under § 502(d) in the hands of the original claimant is similarly disallowable in the hands of a subsequent transferee. For the reasons set forth herein, the answer is yes and thus, we will affirm.
Creditors holding claims against an entity who has filed a Chapter 11 petition sometimes face a risky and lengthy bankruptcy process. To avoid this risk and expense, a creditor may look to sell its claim, a practice permitted under the bankruptcy rules. In re Kreisler, 546 F.3d 863, 864 (7th Cir. 2008) (citing Fed.R.Bankr.P. 3001(e)). By selling its claim, a risk averse creditor can opt out of the bankruptcy process and obtain an immediate, albeit discounted, payment on the debt it is owed. See id. Claim purchasers buy these claims and hope to receive a distribution from the debtor's estate in excess of the price paid. See Tally M. Wiener & Nicholas B. Malito, On the Nature of the Transferred Bankruptcy Claim, 12 U. Pa. J. Bus. L. 35, 36 (2009) ("Some purchasers are simply . . . investing with an eye towards receiving a distribution on claims in cash or readily liquidated property in excess of the purchase price.").
A trade claim is usually transferred via contract. If a claim is transferred before a proof of claim is filed, Federal Rule of Bankruptcy Procedure 3001(e)(1) allows a transferee to file the proof of claim. See Fed.R.Bankr.P. 3001(e)(1). If a claim is transferred after a proof of claim is filed, Rule 3001(e)(2) requires a claims transferee to file an "evidence of transfer" with the bankruptcy court. See Fed.R.Bankr.P. 3001(e)(2).
The Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code on January 14, 2004 (the "Petition Date") to liquidate all of their assets. On March 15, 2004, as required by 11 U.S.C. § 521(a)(1)(B)(iii), each Debtor filed a Statement of Financial Affairs ("SOFA"). Each SOFA required the disclosure of all payments made within the 90 days immediately preceding the Petition Date. Payments made during this 90-day time period ...